ABP, the €399 billion ($454.9 billion) pension fund for government and education employees in the Netherlands, saw all of its gains for the first three quarters wiped out due to “market turmoil” in last quarter of the year. This lowered the fund’s coverage ratio to 97.0%, from 104.4% at the end of 2017.
The fund lost 4.6% in the fourth quarter and ended the year down 2.3%. Although ABP’s available capital rose in the first three quarters from €409 billion to €419 billion, it then fell €20 billion in the fourth quarter alone to end the year at €399 billion.
“2018 was a year with ups and downs,” ABP board Chairman Corien Wortmann-Kool said in a release. “In the first three quarters of 2018, the financial position improved step by step. But the stock markets, which turned deep red in the fourth quarter, threw a spanner in the food of investors. “
Wortmann-Kool attributed the poor stock performance at the end of the year to the trade war between the US and China, as well as concerns about Brexit and economic growth expectations, among other factors.
The fund said that over the past five years, it has achieved an average return of more than 6%. However, it added that it expects returns to decrease over the next 10 to 15 years to an average of 5%.
As a result, Wortmann-Kool said, “there is a chance that the pensions will be reduced and that the pension increase will be far away in the coming years.”
The fund also said lower interest rates had an impact on its results. It said the notional interest rate fell by 0.1 percentage point in the fourth quarter, and the impact on the value of the pensions that ABP has to pay out in the future was a “substantial increase” to €411 billion at the end of the year 2018 from €396 billion.
“This increase too had a drastic effect on the funding ratio,” said Wortmann-Kool, who added that “if the interest rate falls, a fund must keep more cash in order to be able to meet all obligations.”
The fund’s top holdings have a heavy technology slant, which includes shares of Samsung Electronics, Apple, Chinese technology giant Tencent, Taiwan Semiconductor Manufacturing, and Alibaba.